Political Animal


August 05, 2012 12:14 PM For-profit colleges: the subprime mortgage industry, 2012 version

By Kathleen Geier

Earlier this week, Tamar Lewin of the New York Times published an excellent story about a congressional report that was released earlier this week about for-profit colleges. I didn’t see this report, authored by a committee headed by Senator Tom Harkin, covered in any of the blogs I regularly visit so I wanted to be sure I wrote about it a little here. For-profit colleges are an increasingly significant and fast-growing segment of the higher education field, and this is a cause for alarm. These schools are bottom-feeding, malevolent institutions. Here’s what Senator Harkin told The Times about the committee’s investigation:

In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation … [snip] These practices are not the exception — they are the norm. They are systemic throughout the industry, with very few individual exceptions.

Here are some more of the details cited in the article:

— Students at for-profit colleges are charged, on average, four times a much for tuition as are students at public colleges and universities.

— 80% of the revenue of for-profit colleges comes courtesy of the U.S. taxpayer — i.e., the federal government.

— They use really sleazy and deceptive business practices to attract students. Lewin reports:

Furthermore, the report found, recruiters are often encouraged to avoid directly answering questions about costs and instead emphasize that with federal aid, student will pay little out of pocket. And costs are not easy for students to determine. A former Westwood College recruiter explained that prospective students were told that the cost was $4,800 per term, but not that there were five or six terms a year rather than the usual two or three.

— These colleges do an exceptionally crappy job of educating students. First of all, they can’t even manage to retain students. The Times article states that “the majority of students they enroll leave without a degree, half of those within four months.” Even those who do earn credits or a credential frequently discover it’s not worth the paper it’s printed on:

At many schools, students learned only after the fact that their credits would not transfer to another college or university or qualify them for the professional licensing they sought.

— Another great stat from The Times: “Students at for-profit colleges make up 13 percent of the nation’s college enrollment, but account for about 47 percent of the defaults on loans.”

— The Times also reports that the portion of revenue that goes to profits exceeds the portion that goes to instruction, 19.4 percent vs. 17.7 percent, respectively. And the CEO’s at these places make, on average, a staggering $7.3 million per year. One CEO made $41 million in 2009!

Here is some of the political background to this report: in this economy, the demand for technical and vocational education is greater than ever. Unfortunately, funding for many of those programs at community colleges and other public institutions has been slashed. The for-profit colleges have stepped in to meet the demand, and Republicans love this. They think of the for-profit colleges as being a market-friendly alternative to public institutions and therefore superior in every way — practically, morally, spiritually, you name it. So they strongly support policies that encourage lax regulation over these places, and that enable them to greedily feed off the public trough of taxpayer money.

This is a toxic brew and truly noxious state of affairs, but sadly, it doesn’t look like anything will change soon. Writers Roger Bybee at In These Times and David Halperin of The Republic Report both conclude that, in Halperin’s words:

There is stalemate in Washington on holding this industry accountable, because the big money that it spends on lobbying, lawyering, and campaign contributions has bought the allegiance of many congressional Republicans and Democrats and has thwarted federal regulations. Thus determined reform efforts by the Obama Administration, and principled leaders [snip] have largely been blocked.

It’s all so sadly predictable. And now I’m so depressed about blogging about all this I’m going to hunt up another music video.

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee


  • Equal Opportunity Cynic on August 05, 2012 1:57 PM:

    I'm well aware of the problems with for-profits (I actually just completed a degree in higher education), but I still think you're painting with too broad a brush. For-profits have done a lot to nudge traditional non-profits out of complacency. We'd be a lot better off reforming the for-profit sector, not trying to eradicate it.

    As you suggest, there obviously is some demand that traditional institutions aren't doing a good job of meeting. Calling them "bottom-feeding" because the N/Ps don't do a good job of accommodating less-prepared students is a little unfair.

  • Equal Opportunity Cynic on August 05, 2012 1:59 PM:

    IOW, I don't see any legitimate place for a subprime mortgage market, but I do see a legitimate role for reformed for-profit colleges. Hence your title of this post is an unwarranted comparison.

  • leopoldvonranke on August 05, 2012 2:01 PM:

    When I retired as a crim lawyer three years ago, I took up education/employment law with a small firm exclusively practicing in those areas. One of the first things I discovered is that student loans are essentially escrowed for the first three months of each semester. At the end of that period, that portion of the loan attributed to that semester becomes the property of the educationa institution.

    So, let's say student "A" gets a $5000 loan from the taxpayers for the 2012-2013 school year, one half being attributable to the first semester and one half attributable to the second.

    Round 'bout mid October, the educational institution gets the first $2500. It has a real incentive to get the "student" through those first few months in order to get its hands on the taxpayers' money. After that, so what?

    Wonder why there seems to be a high drop-out rate beginning about the four-month mark? Guess.

  • Neildsmith on August 05, 2012 2:02 PM:

    I guess this is another example of no good deed going unpunished. Every attempt to help people will be subject to scams, cons, and corruption. We have an obligation to police it as best we can, but then that often makes it hard for people to get the help they need. It's just hard to help those in need when so many are actively undermining every attempt. I don't know how you govern or make progress in this environment - perhaps you can't.

  • c u n d gulag on August 05, 2012 2:06 PM:

    This never ending effort to privatize everything, is the 'Road to Perdition," and the fastest way to becoming a 3rd World Banana Republic.

    Privatization is the greatest scheme ever thought of to seperate tax payers from their money.

    This mantra of "government can't do anything," has been internalized.

    And so, clever grifters, and their political bobo's, take advantage of the perception that somehow or other, despite the fact that from 1933 until "The Reagan De-evolution," we made inroads against "The Great Depression," won WWII on two fronts, built the greatest highway system in the world at the same time that we were building the strongest and most influential middle class in history, and put men on the moon.

    And all of that, while government couldn't do sh*t, right?

    And what privatization does, is take taxpayers money, and give it to the cronies of the politicians in power.

    In prior generations, if some program from education to trash pick-up didn't work, the politicians who were the overseeer's of the operation, had to stand before the voters.

    Now, the politicians reward their cronies, with the understanding that they'll hire family members and other cronies, and, should that politician tire of having to get votes, will have a soft place to land on the board of whatever once public service the grifters have privatized.

    Privatization takes tax dollars out of tax payers pockets, and, instead of redistributing those dollars back into things that can better the community, and the welfare of the people, moves that money into the pockets and off-shore account of the grifters - after a little has been skimmed-off to the politicians who made it all possible.

    For-profit colleges are nothing but an attemt to close down "Community Colleges," and put that local tax money into the pockets of the national educational grifters, and the politicians who make the decisions.

    It is nothing but "THEFT."
    Pure, and simple!

  • Equal Opportunity Cynic on August 05, 2012 2:31 PM:

    c u n d gulag: Perhaps you're confused about the nature of privatization. Although there are one or two cases of endangered private N/Ps that turned into F/Ps, I know of no case where anyone has privatized a public institution. The for-profits are dealing with capacity that the public schools haven't accommodated, or otherwise offering curriculum that students don't believe they can get at public institutions.

    Failing to build that capacity may be philosophically aligned with privatization, but it's not precisely the same thing.

  • c u n d gulag on August 05, 2012 2:46 PM:

    Equal Opportunity Cynic,
    How about the military?

    My late father, when he served, state-side, during the Korean War, had to do KP duty - for whatever it was that they paid him hourly.

    Now, outside contracting companies are hired to bring in low wage workers do things like that, and other tasks that were other basic duties of all military personel. And that includes, security!

    And, instead of paying some soldier whatever their hourly wage is, we pay some contracting company multiple time that to bring in some low-wage schmuck (with no benefits), to do that work, and the company keeps most of that money as profit.

    In Iraq and Afghanistan, for "security purposes," the contractors didn't even have the decency to hire locals, who could have used the work.
    Instead, they shipped in very low-wage contract workers from some other country.

    I could go on and on.
    But, I won't.

  • Neildsmith on August 05, 2012 3:23 PM:

    According to the Times article, "the colleges studied had a total of 32,496 recruiters, compared with 3,512 career-services staff members." Given those numbers, it's not hard to imagine that there are more than 100,000 people working at the 30 companies.

    It's easy to say that the problem is with 30 CEO's or a few hundred executives, but that's really not the case. Tens of thousands of Americans are in on the scam. You simply cannot clean up a program where thousands of our fellow citizens are actively participating in the fraud.

    As a country, we have lost our way. We lack the integrity to act for the common good. This is just one more example.

  • Diane Rodriguez on August 05, 2012 3:38 PM:

    In my work ( now retired) I saw the result of the largest for profit university in this area. Workers who attended this university, across the board, came out with overwhelming debt and a terrible education. Common practice is to make sure students get high grades to keep the tuition coming. One woman, who became a US citizen while attending this for profit University, earned a Master in Business. She worked as an entry level clerical and could not pass the test for a journey level position. She owed $80K. She repeatedly failed other tests for positions that an MBA would be overkill.

    It was an abuse.

  • mazoola on August 05, 2012 5:55 PM:

    What seems obvious is that the Wall Street terrorist organization has moved into the for-profit educational space and worked their usual magic: massive boiler-room recruitment centers, fixation on closing deals, no matter the cost, defrauding students and lenders alike.

    There's an excellent cover story on this topic in this week's SF Weekly. (Caveat: I'm not sure if this is an SF Weekly-exclusive or one shared among other Voice Media tabloids.) Money quote: "Total student loan debt, now over $1 trillion, has surpassed credit card debt."

  • Anonymous on August 05, 2012 11:50 PM:

    but securitization of student loans happened peaking in 2008 regardless of its attended schools were not for profit or for profit, i thought?

    for-profit colleges are better than not for profit colleges in one thing:
    our great, not for profit colleges are in grave debts. they include such giants as harvard and university of chicago.

    it looked like even the smartest among of all of us (supposedly) who weren't motivated by greed but high purpose were riding excess spending.
    too bad that it is likely to be students that have to pay most for them but with less quality.

    anyways, at least we stopped banks gambling with student loans now.
    let's hope that congress get together to halt student loan increase.

  • Lolly on August 06, 2012 12:44 AM:

    Harvard in 'grave debt?'

    Where does that claim come from? Harvard has an endowment in the billions. So do the other major private universities.

  • Sub-Prime Loans on August 06, 2012 3:13 PM:

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